IT: The Last to Know in a Merger

Technology plays an increasingly critical role in all firms, yet IT departments are generally the last to know when a firm is merging or being merged. Why? IT is typically not part of a merger checklist, and, frankly, most people negotiating mergers know little about IT. Nevertheless, technology (or lack thereof) is one of the principal reasons why firms merge. The other primary reasons are a lack of leadership and no funded retirement program or succession plan. Sure, growth drives mergers, but your firm may be missing a great opportunity to ensure a smooth transition, as well as cultural transformation with some planning ahead, rather than merely reacting after the deal is done.

Over the years, we have witnessed the largest and smallest of firms enter into mergers. Based on these, observations have been compiled for a list of best practices. Many firms initially ignore IT during mergers, only to discover they should have done due diligence and are amazed at the cost (in terms of time and dollars) of integrating a merged firm. In the old days, firms simply let the merged firm continue to operate using its old systems, until it was time to upgrade, or a convenient occasion arose. What they typically found, however, was that it is never convenient, and those with political power don’t want change. Some merged firms still employ this strategy, but they generally experience significant cultural differences, inefficiencies and frustrations. Often, these are the mergers that don’t work.

It is impossible to share resources among offices, if they utilize different systems and, more importantly, people are trained and familiar with various processes and systems. In today’s economy, firms can’t afford management inefficiencies. Poor management will be exposed quickly. Far from a minor consideration after the deal is done, IT should be addressed in due diligence during pre-merger planning sessions. In some cases, it could even become a deal breaker!

Let’s look at an abbreviated checklist to illustrate some IT issues that arise during mergers. We will follow that by examining some best practices from experienced firms. Even the best firms often fail to conduct due diligence when merging IT departments before signing a deal. Too often, they consider IT a part of the administrative transition, but this notion is completely wrong. Like it or not, IT is the accelerator for business, and firms are spending a significant amount on it. IT is not an administrative function, and firms often make costly mistakes that can be avoided with proper planning and getting the right people (internal or external, if your firm doesn’t have the time or capability) to conduct a technology review. This can typically be accomplished in a couple of days, if the reviewer is experienced and has access to the right people in the firm (CEO, COO, CIO and Learning Director).

The primary areas of a technology review are:

IT Governance

Hardware, including phone and remote access

Software, including operating systems, applications and licensing

People and skills inventory in the IT department

Standards, policies and procedures (documented and enforced)

Training capabilities and learning ladders

IT spend and budget (Has the firm “milked” or “maintained” its systems?)

Now, let’s examine some best practices that firms are using to ensure cultural transformation and IT integration. Some of you will be surprised and may even resist, but my advice is to strongly consider the options and time saved when firms employ these strategies and practices.

Rip and replace all non-conforming hardware and software immediately. Most issues are behavioral, rather than technology-related. These issues can easily be addressed with the proper training and communication. The longer a merged firm continues to utilize non-conforming software and hardware, the longer the transition period lasts. Sell the used hardware on eBay; this is exactly what many of your peers are doing. It takes much less time to configure standard hardware and software on a new machine than it does on existing hardware that does not comply with firm standards. Ensure all sensitive data is thoroughly purged from equipment before selling or disposing of it.

Assess the IT skills of partners and staff in the merged firm. Conduct orientation and training sessions immediately to ensure a smooth transition. Train to the firm’s standard learning ladders.

Include representation from the merged firm on the IT Governance Committee.

Make sure IT personnel from the merged firm report to the firm’s CIO or IT Director.

Budget $10k per person for this transition. This includes hardware, software, infrastructure, training and labor for the transition.

I can hear many of you saying, “No way. We can do it and have done it for much less.” Believe me, I have witnessed the challenges and outcomes many firms have already experienced. Most problems can be eliminated, or reduced significantly, with proper planning, leadership, orientation and training.

Ask the managing partner or IT Director at firms that have successfully merged others into theirs. Most will admit that technology and culture are two of the biggest issues in mergers. Also, don’t be surprised to learn that some small firms are further along with technology than the firms acquiring them. (Note that these small firms are not normally looking to be acquired, unless they have succession and leadership issues.) Mergers that require the acquired firm to take a step backward with technology generally do not work.

Remember – what you don’t know is what costs you time and money. Due diligence and proper IT planning will pay huge dividends. There can be great IT synergy in mergers, if handled properly.

About the Author

L. Gary Boomer, CPA.CITP, CGMA

L. Gary Boomer is the Visionary & Strategist of Boomer Consulting, Inc., an organization that provides consulting services and peer communities to leading accounting firms. BCI's vision is to make you more successful and future ready. Areas of focus include: planning, people and processes with technology as the accelerator. Gary is recognized in the accounting profession as the leading authority on technology and firm management.